MNI: Fed's Waller: Current Inflation Drivers 'Temporary'

The coincidence of at least six transitory factors will cause inflation to overshoot the Fed's goal this year and next but won't lead to sustained higher inflation, Federal Reserve Governor Chris Waller said Thursday.

Base effects, higher energy prices, fiscal stimulus, high savings, supply bottlenecks and excess demand for labor are occurring all at once in an economy "going gangbusters" but will all dissipate in due time, he said in remarks prepared for a virtual finance forum.

The shockingly strong April CPI report "was a surprise, but a look at its causes doesn't alter my fundamental outlook, which is that the main pressures on inflation are temporary," he said.

EXCEED TWO PERCENT

"I expect that inflation will exceed 2 percent this year and next year. After that, it should return to target. And in my view, this fluctuation is okay -- our new framework is designed to tolerate a moderate overshoot of inflation for some time as long as longer-term inflation expectations remain well-anchored at 2 percent."

Waller said he expects the FOMC to maintain an accommodative policy "for some time" as the data shake out. The labor market is far from recovering to its pre-pandemic level, hindered in part by labor shortages, "so monetary accommodation continues to be warranted."

"We need to see several more months of data before we get a clear picture of whether we have made substantial progress towards our dual mandate goals," he said.